Q4 2024 Helmerich & Payne Inc Earnings Call
Speaker Change: and Bill Gates. I'm Dave Wilson. I'll see you next time.
Thank you.
Speaker Change: Good day and welcome to Helmrich and Payne's fiscal fourth quarter earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session.
Speaker Change: You may register to ask a question at any time by pressing star 1 on your telephone keypad. Please note today's call will be recorded and I'll be standing by if you should need any assistance. It is now my pleasure to turn the call over to Dave Wilson. Please go ahead.
Dave Wilson: Thank you, Todd, and welcome everyone to Humber Companions Conference Call and Webcast for the fourth quarter and full fiscal year of 2024. With us today are John Lindsay, President and CEO, and Kevin Vann, Senior Vice President and CFO.
Dave Wilson: Both John and Kevin will be sharing comments with us, after which we'll open the call for questions.
Dave Wilson: Before we begin our prepared remarks, I will remind everyone that this call will include forward-looking statements as defined under the securities laws. Such statements are based on current information and manage expectations as of this date and are not guarantees of future performance.
Dave Wilson: Forelooking statements involve certain risks, uncertainties, and assumptions that are difficult to predict.
Dave Wilson: As such, our actual outcomes and results could differ materially. You can learn more about these risks in our annual report on 410K, our quarterly reports on 410Q, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to publicly update these forward-looking statements.
OK.
Dave Wilson: We also make reference to certain non-GAAP financial measures such as segment operating income, direct margin, and other operating statistics. You'll find the GAAP reconciliation comments and calculations in yesterday's press release.
Dave Wilson: Finally, as you will hear probably a couple of times in this call, unless expressly identified otherwise, statements made during this call relate to H&P on a standalone basis and do not include any amounts or guidance related to KCA Joytag or on a combined enterprise basis resulting from the pending KCA acquisition.
Speaker Change: With that said I'll turn the call over to John Lindsay
John Lindsay: Thank you, Dave. Good morning, everyone, and we appreciate you joining us today.
John Lindsay: The company delivered another strong year in fiscal 2024. I'm extremely pleased. We continue to lead the industry in safety, customer satisfaction, and margin generation.
John Lindsay: Looking back on our expectations and how we executed on our strategies in a challenging market,
John Lindsay: Three elements stand out in my mind as being noteworthy and will continue to be pivotal for the company going forward.
John Lindsay: First, our focus on achieving the best customer outcomes by executing strategies that deliver safety, operational expertise, and technology solutions continue to generate superior contract economics and industry-leading rig performance and margin generation.
John Lindsay: Second, our teams swiftly adapted to a market where customer consolidation and commodity price volatility was driving a lot of rig churn in the U.S.
John Lindsay: In tandem, these two factors drove the U.S. industry rig count down about 5% year-over-year, while the H&P North America Solutions rig count experienced a slight increase.
John Lindsay: Under those conditions, our teams delivered solid performance, generated healthy margins, and grew market share to approximately 28 percent.
John Lindsay: The third element is the progress we've made in our international solutions growth strategy.
John Lindsay: We've delivered five of eight flex rigs in Saudi Arabia, and the first rig has commenced operations for Aramco.
John Lindsay: Additionally, we're executing on the transformational acquisition of KCA DOITAG, which will position us as a global drilling leader, and we expect to close that transaction in December or January, depending upon regulatory approvals.
John Lindsay: Looking at the fourth fiscal quarter results, our North America Solutions rig activity trended as we expected.
John Lindsay: Up a handful of rigs from the previous quarter and exiting at 151 rigs
John Lindsay: Along with the increased rig count, the North America Solutions segment was also able to sustain healthy direct margins, which again is a testament to our ability to deliver value to our customers through our drilling solutions approach.
John Lindsay: Heading into the first fiscal quarter of 2025, we expect our rig count to remain relatively flat as incremental demand for rigs is matched with rigs rolling off of
existing commitments.
John Lindsay: Similarly, we expect North America Solutions Direct margins to remain relatively flat during the quarter.
John Lindsay: From a big picture perspective, the rig count in the U.S. has been choppy over the past year.
John Lindsay: Between customer consolidation, low natural gas prices, and overall performance improvements, the industry's super spec rig count is down approximately 30 rigs from the high in 2024.
John Lindsay: Given that H&P increased activity in 24, we've demonstrated that safety, efficiency, and value creation delivered with leading technology and performance-based contracts.
lead to profitable growth.
John Lindsay: During the year we have seen, we have also seen private E&P's activity increase for the FlexRig fleet and our teams continue to work closely with a broad array of customers across our industry.
John Lindsay: Our increase in market share and margins throughout the year were directly in line with our delivery of more value as we assist customers by drilling longer laterals.
John Lindsay: reducing cycle times and well costs, and improving overall well performance.
John Lindsay: We strive to deliver the best outcomes to our customers in a safe and predictable manner. The customer-centric approach allows us to align and execute in a manner that has all parties working together toward a common goal.
John Lindsay: Our performance contracts continue to drive alignment on operations and utilize our cutting-edge performance technologies.
John Lindsay: The industry superspec rig count continues to grow market share in the U.S. unconventional market and makes up approximately 76% of the active fleet.
John Lindsay: We believe that longer laterals, more complex well designs, and greater focus on well placement and reliability will remain the key factors that drive higher utilization and the adoption of digital technology and automation on the FlexRoute fleet.
John Lindsay: Looking ahead for 2025, we believe the rig count will tend to be flat to slightly up during the first half of 2025 and will trend down through the year similar to 2024.
John Lindsay: That, of course, could change if commodity prices move either up or down dramatically.
John Lindsay: A rig count has been range bound between 144 and 156 rigs for 18 months in North America. And all indications with current commodity pricing is that is going to be the outlook.
John Lindsay: In our International Solutions segment, a milestone event for H&P occurred in Saudi Arabia.
John Lindsay: Our first flex rig spotted in a Saudi unconventional field, and the next four flex rigs are in various stages of moving and rigging it.
John Lindsay: These results are a culmination of over five years of hard work by the H&P team.
John Lindsay: I'm pleased with the current progress and excited about delivering returns on our investments and our team's focus on safety and reliability.
John Lindsay: Another significant achievement during fiscal 2024 was the announcement of the acquisition of KCA DOTEC.
John Lindsay: This acquisition is a transformative event for the company and establishes H&P as not only the leader in the U.S. land industry, but also a global leader in onshore drilling and significantly accelerates our Middle East expansion.
John Lindsay: I'm especially pleased that as we've been able to spend more time with the KCA DOTAG team since the acquisition announcement as we plan for integration, it's been confirming that this transaction will be a great fit from a cultural perspective.
John Lindsay: We share a customer-centric approach, a safety-first mentality, and a commitment to providing exceptional performance and value for customers.
John Lindsay: There are many reasons to remain excited about the KCA DOITAG acquisition, but since our announcement in July, there have been several notifications in Saudi of multiple rigs being suspended.
John Lindsay: both onshore and offshore, and some of the KCA DOJTAG rigs were included in those suspensions.
As a provider of rigs and Saudi Arabia.
John Lindsay: KCA announced in September they had received eight contract suspensions of their rigs for a period of up to 12 months.
John Lindsay: Having rigs suspended is not without precedent in this cyclical industry.
John Lindsay: Despite these near-term headwinds, the strategic rationale and reasoning for this acquisition remain firmly in place.
First, it accelerates our international growth strategy.
John Lindsay: Secondly, it enhances our presence in the Middle East conventional rig market, specifically in Saudi, Oman, and Kuwait.
Third, it increases the company's global scale and revenue diversification.
John Lindsay: Not just geographically, but also by adding a sizable asset light offshore management business.
John Lindsay: Fourth, the addition of a world-class manufacturing and energy services capability, and finally, strengthening and diversifying the company's long-term return on capital and cash flow profile.
John Lindsay: Kevin will provide some additional facts during his remarks regarding the acquisition and will also provide some additional clarity regarding our cash position, our strategy, and ability to delever the balance sheet.
John Lindsay: We have every confidence that the KCA DOTAG acquisition will strengthen H&P's overall cash flow profile with a more diversified and durable revenue stream in the long term.
John Lindsay: Going forward, we will continue to execute on our growing portfolio of strategic objectives.
John Lindsay: First, we will build on and increase the durability of our free cash flow and continued success in our North America Solutions business.
John Lindsay: Along with that, we will be focused on successfully integrating H&P and KCA DOITEC.
John Lindsay: delevering our balance sheet and seeking opportunities to export the FlexRig's unconventional successes we're achieving in the U.S.
to a now larger footprint of international unconventional markets.
John Lindsay: We'll also maintain our focus on delivering superior returns for our shareholders as we expect to maintain our peer-leading base dividend and to maintain our strong focus on disciplined capital allocation.
John Lindsay: In closing, during fiscal 2024, our teams remained steadfast in our operating
John Lindsay: A robust business aimed at achieving the best outcomes for our customers, employees, and shareholders.
John Lindsay: We successfully improved our sustainability profile by reducing potential safety incidents by approximately 17% year-over-year.
and decreasing normalized GHG emissions over 10%.
John Lindsay: By having a customer-centric approach, we improved our cost per lateral foot, drilled, and enhanced well consistency.
John Lindsay: We've also strategically deployed our technology and adjusted our commercial approach to help customers achieve their objectives.
John Lindsay: Another key element in our 2024 success was a focus on our people. We prioritized improving quality of life on the rig and invested in career development.
creating a strong foundation for growth across the company.
John Lindsay: Our world-class employees, known for their adaptability and drive, have always been at the heart of our achievements.
John Lindsay: Looking ahead, the H&P team is committed to delivering even greater results for our shareholders in 2025 by leveraging our distinctive capabilities.
John Lindsay: And now I'll turn the call over to Kevin. Thanks, John. Today I will review our fiscal fourth quarter and full year 2024 operating results and provide operational guidance for the first fiscal quarter of 2025.
Kevin Vann: Additionally, I also want to spend some time to address our annual fiscal 2025 projections, our financial position, and provide an update on our strategic and transformative acquisition of KCA DOETAG and our focused efforts to lower our leverage position resulting from it.
Kevin Vann: Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30, 2024. In general, the fourth quarter looks very similar to the third quarter of this year.
Kevin Vann: I'm pleased to say that we did not miss the fairway on any of our guided metrics. We were right down the middle.
Kevin Vann: The company generated quarterly revenues of $694 million versus $698 million in the previous quarter.
Kevin Vann: Correspondingly, total direct operating costs incurred were $409 million for the fourth quarter versus $418 million for the previous quarter.
Kevin Vann: General and administrative expenses totaled $67 million for the fourth quarter and $245 million for fiscal 2024, which is in line with our expectations.
Kevin Vann: The fiscal 24 effective tax rate was approximately 28.5%, which is at the high end of the previously guided range.
Kevin Vann: due to some acquisition costs that could not be expensed for tax purposes.
Kevin Vann: To summarize fourth quarter's results, we are reporting net income of $0.76 per diluted share versus $0.88 in the previous quarter.
Kevin Vann: Earnings per share for the full year of $3.43 per share was negatively impacted by some unusual and non-cash items, and absent those items would have been $3.50 per share.
Kevin Vann: Capital expenditures for the fourth quarter were $106 million, with full year 2024 totaling $495 million, which was in line with our expectations from the July earnings call.
Kevin Vann: H&P generated $169 million in operating cash flow in the fourth quarter and a total of $685 million during the full year. Our cash flow generation helped fund $495 million in CapEx.
Kevin Vann: $168 million in base and supplemental dividends and $51 million in share repurchases.
Kevin Vann: Now turning to our three segments, beginning with the North American Solutions.
Kevin Vann: We averaged 151 contracted rigs during the fourth quarter, which was almost flat with the third. And we exited the fourth quarter with the same number we averaged during the quarter of 151 rigs, which was consistent, again, with our expectations going into the quarter.
Kevin Vann: Segment direct margin for North American Solutions was $275 million, which was above the midpoint of our July guidance range.
Kevin Vann: Total segment per day revenues decreased slightly to $39,100 during the fourth quarter from $39,840 per day in the third quarter.
Kevin Vann: Direct margins for the quarter were $19,800 per day versus $20,300 per day during the third quarter.
Kevin Vann: Looking ahead to the first quarter of fiscal 2025 for North American Solutions, as of today's call, we have 149 contracted rigs working.
Kevin Vann: As we have stated, we expect our rig count to remain relatively flat as all market sentiment continues to point to such. That said, we expect to end our first fiscal quarter with between 147 and 153 rigs working.
Kevin Vann: Our current revenue backlog from our North American Solutions fleet is roughly $700 million for rigs under term contract, down from $800 million in the previous quarter. As of today, approximately 57% of the U.S. active fleet is on a term contract.
Kevin Vann: Additionally, as our performance contracts continue to drive alignment with our customers, we currently have roughly 50% of our rigs on them.
Thank you.
Kevin Vann: In the North American Solutions segment, we expect direct margins in our first quarter to range between 260 to 280 million, as we don't see a material change in the expected margins based on our current contractual structure.
Kevin Vann: Expectations around operating cost and rig count expected to be roughly flat compared to the fiscal fiscal year fourth quarter.
Kevin Vann: Regarding our international solutions segment, we had approximately 16 rigs at September 30th, which is a little higher than the third quarter as rigs under contract have been delivered to Saudi and are being prepped for startup.
Kevin Vann: Note, these rigs will not generate revenue until they spud, hence there is not the corresponding change in expected direct margin in the first fiscal quarter of 2025.
Accordingly, aside from any foreign exchange impacts...
Kevin Vann: We expect our direct margins to be roughly flat for the first quarter of fiscal year 2025 when compared to our fourth quarter.
Kevin Vann: Turning to our offshore Gulf of Mexico segment, we generated a direct margin of approximately $7 million during the quarter, which was within our guided range.
Kevin Vann: As we look toward the first quarter of fiscal 2025 for this segment, we expect that it will generate, again, between $7 million to $9 million of direct margin.
Kevin Vann: Now, I'd like to transition to the first quarter and full year 2025 for certain consolidated and corporate items.
Kevin Vann: First, I want to be very clear that any guidance that I have given up to this point and for the remainder of this call is for stand-alone H&P and does not include the impact of combining KCA DOE tag into our expected results.
Kevin Vann: In 2025, our strategy to maintain our strong balance sheet, together with investment grade credit metrics, will not change.
Kevin Vann: We continue to invest in maintaining our market-leading North American solutions fleet and to deploy capital prudently to international growth opportunities.
Thank you.
Kevin Vann: Fiscal 2025 gross capital expenditures are expected to be approximately $290 to $325 million, with around 85 percent of it expected for North American solutions, including maintenance per active rig of approximately $1 million, which is more in line with historical levels.
plan rig related equipment upgrades and six plan walking conversions.
Kevin Vann: The International Bucket represents the balance of CapEx and is primarily for rig maintenance and the remaining spend on the 7-rig tender award with Saudi Aramco.
Kevin Vann: Our fiscal 2025 budget CapEx represents a $190 million or 40% decrease to our 2024 actuals. As such, this frees up a substantial amount of cash that will be allocated towards debt reduction in the future.
Thank you.
Kevin Vann: Depreciation for fiscal 2025 is expected to be approximately $400 million. Our sales, general and administrative expenses for full fiscal 2025 year are expected to be approximately $235 million, which is slightly down from 2024 actuals.
Kevin Vann: Our investment in research and development remains largely focused on solutions for our customers, such as drilling automation, wellbore quality, and power management. We anticipate R&D expenditures to be roughly $32 million in 2025.
Kevin Vann: Based upon estimated fiscal 25 operating results in CapEx, we are projecting a consolidated cash tax range of $140 to $190 million.
Subs by www.zeoranger.co.uk
Now looking at our financial position.
Kevin Vann: We had cash and short-term investments of approximately $510 million on September 30, 2024.
Kevin Vann: including the availability under our revolving credit facility, our total liquidity is approximately 1.5 billion.
Kevin Vann: Included in the short-term investments balance are the shares of Adnok Drilling for which we sold after September 30th through a private placement that yielded proceeds of $197 million.
Kevin Vann: This amount was substantially more than what we had originally anticipated when we announced our debt reduction plans associated with the KCA Dewey Tag acquisition.
Kevin Vann: We also have $1.2 billion in restricted cash as a result of the bond deal we did in September. These funds, along with an unfunded $400 million term loan, are earmarked for the financing of the KCA DOITAC acquisition.
Speaker Change: The bonds have staggered maturities of 3, 5, and 10 years with an average interest rate of roughly 5%. As John indicated, we continue to work through the customary closing conditions and regulatory approvals for the acquisition and are expected to close it
Speaker Change: around sorry expected to close prior to December 34th or roughly right thereafter.
Speaker Change: Regarding cash returns to shareholders, and as a reminder, we plan to maintain our long-standing base dividend of approximately $100 million in 2025.
Also, as part of our deleveraging efforts.
Speaker Change: We have suspended the supplemental dividend, which again was roughly $68 million in fiscal 2024. That amount, along with the share repurchases of $51 million last year and the reduction in planned capex of $190 million, result in over $300 million of available free cash to reduce debt.
Speaker Change: Inclusive of the funds raised by the Adnox Grilling Equity Sale, together with the rates achieved on bond financing, our outlook to reduce our debt level during 2025 and 2026 is still right on track.
Speaker Change: With that, that concludes our prepared comments for the quarter, and we'll now turn it back over to Todd for questions.
Thank you.
Speaker Change: Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. If you find that your question has been answered, you may remove yourself by pressing star 2.
Speaker Change: Once again, to ask a question, please press star 1 at this time. Our first question will come from Arun Jayarum with J.P. Morgan. Please go ahead.
Yeah, good morning, gentlemen.
I wanted to get your thoughts...
on what you view as
Speaker Change: The potential run rate for KCA DOITAG, John, you mentioned some of the one-year rig suspensions.
Speaker Change: I know at the time of the acquisition, you'd highlighted around $340 million of run rate EBITDA plus $25 million of synergies.
Speaker Change: But if we're going to incorporate some of the suspensions, what would you give us in terms of a range of EBITDA on a run rate basis for KCA, thinking about 2025?
Speaker Change: Have we given any, we haven't really given any other additional guidance?
Speaker Change: Yeah, Rudy, you can't really quantify right now because they say for up to 12 months and, you know, that's, you know, it could be six months, it could be 12 months, two months, so it's too much of a big of a range there to really give you anything with clarity.
Okay. Fair enough.
I wanted to talk about
Do your
John Lindsay: Outlook, John, that you highlighted for North American Solutions. You mentioned that you expected maybe the rig count to be flat to up in the first half of the year and maybe have a similar profile.
Speaker Change: As this year maybe, you know, with some seasonality, maybe the back half, you know, turns down a little bit. How would you expect HP to, you know, your activity to kind of trend in this kind of outlook, if I characterize that correctly?
Speaker Change: No, you did, Arun, and I think we'll, you know, I think we'll perform well, as I had mentioned in my prepared remarks, you know, we have focused really hard and
Speaker Change: delivering value to customers and maintaining pricing, really trying to generate that 50% gross margin target that we've been talking about now for several years.
Speaker Change: But during that process, even in a declining market, we've been able to pick up a little bit of share. That really hasn't been our focus.
But I think when you look at the well
the wells that are being drilled.
Speaker Change: The complexity of the wells, you know, you hear more and more about three-mile laterals, four-mile laterals.
Speaker Change: to the wells that we're drilling. And so super spec capacity rigs, technology, having a good digital technology platform is really helping us.
deliver greater value for customers.
Speaker Change: And so I think it's a great opportunity for us to continue to pick up share while defending pricing, again, just based on this 50% gross margin target that we have.
Speaker Change: Of course, there's a lot that we don't know in terms of gas prices, I think if natural gas prices were to improve.
Speaker Change: then I think there's an opportunity to put some additional rigs back to work. But based on what we're seeing right now, I think it's a very similar trend to what we saw in 2024, and I think in that environment we'll perform pretty well.
Speaker Change: And just to circle back on to your question about projections in relationship to the rig suspensions.
Speaker Change: Obviously, as Dave said, it's almost impossible to really model that out, and we're limited in terms of what we can and can't do and what we can and can't talk about just because of the fact that the deal has not closed. But if you look at it through my lens...
Speaker Change: and you look at the things that I do have clarity on versus the way we had originally modeled them whenever we signed the deal back in July.
Speaker Change: Some things have definitely come in positive in our favor. Number one, if you look at just the amount of CapEx reduction that we've got.
on our side going to
Speaker Change: help us to reach the kind of the leverage goals that we had stated by the end of 2025 and 2026, coupled with, you know, the original
Speaker Change: Purchase for our sales price associated with the ad not drilling shares
Speaker Change: You know, that's $60 or $70 million higher than what we had originally modeled whenever we were thinking about our deleveraging plans.
Speaker Change: In addition to that, the interest rates that we achieved on the bonds, that came in significantly lower than they originally planned upon financing. So the items for which we've got clarity on puts us really on track to what we had originally anticipated which was
Speaker Change: you know, being below a turn of leverage by the end of 2026. So, actually, you know, halfway between 2025 and 2026, you know, we looked, based upon the projections that we had at the time in which we did the deal, we're still right on track to get back to that level.
All right, thanks a lot.
Thank you.
Speaker Change: Thank you. Our next question will come from Eddie Kim with Barclays. Please go ahead.
Speaker Change: something more to it than that. I think there was an expectation in the market that potentially, you know, some gas rigs or gas activity could increase in the second half of the year. Should we read into your commentary that
Speaker Change: You don't believe that that is going to take place, that might get pushed out sometime into 2026? How should we kind of read into the commentary about the trending down in the second half?
Yeah, that's a good point and you know it's
Speaker Change: We've actually seen this over the last couple of years. And again, I think we had mentioned we've been in this range of rig activity of 144 to 156 rigs over the last 18 months or more.
and that
Speaker Change: Trending down in the second half of the year is not anticipating an improvement in gas prices.
Speaker Change: Obviously, we're hopeful that there will be an improvement in gas prices, but that isn't what we're expecting right now.
Speaker Change: I think the downward trend is historically, you know, related to budgets, related to performance.
Speaker Change: You know, in our case, we've been successful in being able to high-grade what, you know, the additional share that we have picked up has really been a function of high-grading, and so that's been beneficial for us.
Speaker Change: But you know how hard it is to predict these rig counts.
Speaker Change: It seemed to us logical that without anything changing in terms of the commodity deck that we would see
Speaker Change: this same trend that we saw last year where we're seeing a little bit of increase in
and Q4.
Speaker Change: calendar Q4 and then calendar Q1, and then it peaks and then starts, you know, declining slightly. Again, it's about a 30-rig differentiation from the peak of activity in that March-April time frame to where we are today.
Speaker Change: Got it. Got it. That's very clear. Thank you. My follow-up is just on your free cash flow expectations for next year for standalone HP, excluding KCA DOTEC. You did about $190 million of free cash flow this fiscal year.
Speaker Change: up close to that $200 million level for next year or what, if any, offsets should we be thinking about as it relates to your free cash flow expectations?
Speaker Change: No, you're exactly right. I think you should, the math is pretty simple when you're cutting $200 million.
of CapEx out of 2025 projections.
Speaker Change: Just because of, you know, you should see some of the capital efficiencies start to come into play as a result of just the expected earnings and free cash flow to be generated in 2025.
Speaker Change: But, you know, again, margins being consistently, you know, what we're anticipating with margins being consistent in 2025 versus 2024, you know, you can, your simple math is right on.
Speaker Change: Okay, got it. Great. Thank you for that color. I'll turn it back.
Thank you.
Speaker Change: Our next question will come from Doug Becker with Capital One. Please go ahead.
Speaker Change: Thank you. Just to start off on the U.S. guidance for margins to be flat heading into the fiscal first quarter, is there any shift in terms of that revenue per day and or costs? Just trying to think about if pricing stable and we're still in that 19 to 19 and a half thousand a day on the cost side going forward.
Speaker Change: I think that's what we're modeling is a similar both revenue and cost.
cost side of the equation.
Speaker Change: I think what you've seen over the last couple of quarters is kind of consistent with our expectations going into 2025 Which you know around that 19 to 20?
Bye
That's really encouraging in the current environment.
Speaker Change: We continue to hear rumblings about potential for additional suspensions in Saudi Arabia. Just from your market intelligence, do you have any context? Is it something you think is likely?
Thanks for watching. See you next time.
and we shouldn't read too much into that.
Speaker Change: You know, I think we all see the same rumors and commentary. And obviously, we're not in a position to comment on it. You know, there was a question earlier about the...
Speaker Change: suspensions and you know there was a there was an announcement by KCA back earlier this earlier a month or so ago about a suspension of the eight rigs
Speaker Change: You know, as we've stressed, we're still two separate companies until closing, so it really isn't appropriate for us to comment. They actually had a public announcement on this, so there hasn't been any additional updates on that.
Speaker Change: You know, we have seen in the, you know, various publications that there's around 50 rigs overall in the industry that have been suspended, you know, some onshore, some offshore.
Speaker Change: But that's really about all that we can speak to. It's really the same thing that everybody else sees at this point.
and Farrah and I appreciate you can't speak to KCA.
Speaker Change: but certainly it doesn't sound like your conversations for the rigs that you're bringing in.
Those conversations, there's been nothing that suggests.
Speaker Change: Correct. We have the five rigs in-country. One has spud and the others are in various
Speaker Change: You know, positions in terms of getting ready to spud. And so, no, we have not had any notifications of suspensions of the flex rigs.
Thank you very much.
Speaker Change: Thank you. Our next question will come from Scott Gruber with Citigroup. Please go ahead.
Thank you. Bye.
Speaker Change: Yes, good morning. You know, the resiliency of your domestic margins has been really impressive and, you know, it looks to continue here, so I'm curious.
Speaker Change: You know, in light of the performance-based contract model that you guys, you know, pushed over the last two years, as we decompose the, you know, stable margins,
You know, are you seeing basically kind of flat, base,
Speaker Change: day rates on the rig and a relatively flattish bonus contribution, or is the size and the breadth of the bonus contribution increased offsetting, you know, some modest erosion and base rates? How would you
Speaker Change: kind of describe the impact of the bonuses on the stability of your domestic margins.
Scott Gruber: Scott on that, with regards to the performance contracts, historically we see an uplift of $1,000 to $2,000 a day.
Scott Gruber: on the margins relative to what they would get under a straight day rate contract.
Scott Gruber: These last couple of quarters, you know, it's trended to the higher side. And that's something that we've worked really hard to do. And hopefully, you know, in the future I could change that range to something even higher. But right now we're still at kind of $1,000 to $2,000 a day. But the last couple of quarters it's been towards the top end of that range.
Speaker Change: I think the other thing to stress here, Scott, is that in this performance contract,
Speaker Change: It's a win-win, and so when we're doing better, if we're doing better, our customer is also doing better because they're getting wells delivered at a faster pace and at lower cost.
Speaker Change: So that's the beauty of the performance-based contract when constructed properly is that both parties win and And as Dave said, you know, we we had a we had a great quarter Last quarter and and that also means that our customers are doing better as well
Speaker Change: No, it's great to hear. Great to see the model, you know, really providing benefit and capturing some of the efficiency gains that you guys are helping to deliver. And as you think about
Speaker Change: 2025, you know, are you able to push the model any any further in terms of penetration rate across the customer base? You know, are you having success, you know, say pushing it into into private?
Speaker Change: and, you know, generally with these efficiency gains that the industry is achieving, you know, how do the benchmarks change in terms of, you know, capturing the next round of bonus awards?
Speaker Change: Well, you know, I think performance-based contracts are like anything. There's an adoption.
period and and you know
Speaker Change: We've had some great adoption. We've also had some, you know, some churn with rigs. But I do think we'll have some additional.
Speaker Change: customers adopt performance-based. If you look at it today, it's really across the board.
Speaker Change: supermajors, large independents, and we have private companies that also are
Speaker Change: are investing in the performance-based contracts as well. So I think there's a lot of upside opportunity there.
Speaker Change: It's a great opportunity for us to deploy our technologies, our digital technologies. There's a lot of advantages associated with that.
Speaker Change: The adoption curve in general on technology is increasing, both on performance-based and non-performance-based contracts.
Speaker Change: We see both of those as being very positive for the organization and, quite frankly, really positive for the industry because it
Speaker Change: It drives greater reliability. There's also a safety aspect to it that's very important. So, again, I feel good about the direction that it's trending and I feel like we'll continue to have adoption in the coming year.
Appreciate the call. Thank you.
Thank you
Speaker Change: Thank you. Our next question will come from Jeff LeBlanc with TPH. Please go ahead.
Jeff LeBlanc: Good morning, John and team. Thank you for taking my question.
Speaker Change: Good morning. I wanted to ask, as upstream companies continue to highlight drawing efficiency gains,
Speaker Change: How should we think about the stickiness of HP's share of their fleet as these gains get incorporated into the forward outlook? And then additionally, how should we think about the opportunity for M&A-related high grades as it appears that operators have been slower than we initially thought to migrate legacy programs to their preferred drawing contractor? Thank you.
Speaker Change: Yeah, I think, I don't know of anyone in the industry that isn't, isn't interested in.
Speaker Change: higher levels of performance. And number one, and I think even greater than that, is the reliability. We continue to get that feedback from customers.
Speaker Change: Drilling a record well, that's great. But what they really want is reliably drilling wells at
whatever, you know, whatever level of performance that they're targeting.
Speaker Change: and doing that consistently day in and day out. I don't see, in most cases, I don't see well complexity being less going forward. I think well complexity continues to increase.
Speaker Change: We see more three-mile laterals going to four-mile laterals. You've seen some of the...
Speaker Change: You turn configurations, it seems like there's going to be more of that sort of drilling. And so, when you consider that, that means that companies like H&P with
Speaker Change: The best rigs, the best people, and the best technology are going to grow shares. So I think there's a great opportunity there. And then the other, and maybe you asked this, but as I just think about it logically,
So we call it tier two
Speaker Change: That's going to, again, I think drive a push towards greater efficiencies. I'd mentioned in my prepared remarks that
Speaker Change: The Superspec fleet today makes up 76% of the working fleet. I don't remember the exact numbers, but probably five years ago it was...
Speaker Change: It was 50% or maybe even less. So super spec capability requirements, better rigs are going to be what customers are going to want.
Speaker Change: And again, so that puts H&P in a great place here in the unconventional place here in the U.S. and really, I think, globally as well.
Speaker Change: Thank you very much for the color. I'll hand the call back to the operator. Thank you. Thank you.
Thank you. Thank you.
Speaker Change: Thank you. Our next question will come from Kurt Halid with Benchmark. Please go ahead.
Hey, good morning, everybody. Hi, Kurt.
Speaker Change: Hey, always appreciate the color. You know, I'm really curious, right, John, that there's been any significant improvement in...
Speaker Change: you know, drilling efficiency, well efficiency, we've talked about it, you know, quite a bit, not just on this call, but over the past few, and how it's benefited HP, right?
Speaker Change: So, I'm kind of thinking along the lines of, you know,
Speaker Change: What you're seeing right now, what do you think this means in terms of the potential for...
Speaker Change: rig attrition in the U.S., right? So the 76% of the total rig fleet go into 100% and, you know, these other rigs eventually just kind of, you know, either dying off the vine.
Speaker Change: you know, the rate cow basically remains flat and just high-level thoughts from you.
Speaker Change: Well, I don't think there's any doubt that well efficiencies are going to continue to improve for a lot of reasons.
Speaker Change: I think, you know, as you, what ends up driving additional rigs is a stronger commodity price environment. I do think, I mean, again, just look at how
Speaker Change: how many Rigs have been retired over the last 15, 10, 15 years in the U.S. and so I think that's
Speaker Change: There will be much less of that going forward now, I think. But I do think that that's something that the industry will continue to
Speaker Change: Watch very closely. I feel good about where we are in terms of positioning and the fleet that we have Most recently the most we had a hundred and what hundred and ninety hundred-and-ninety-one
Riggs, you know, Atlantis? Yeah.
Speaker Change: And then we have another 10, 15 rigs past that that we could put to work. So feel good about our positioning there. Anything you guys would add? Just, Kurt, the only thing I'd add, you talked about rig efficiency. You asked around that. You look at a rig count in West Texas two years ago.
Speaker Change: We're within one or two rigs of that count today. So obviously there's been efficiencies gained in the markets in the past two years, but yet the H&P rig count in West Texas has remained pretty resilient. So I think that, as John said, that speaks to the value proposition that we bring, the performance that we bring to customers, and when they see that they want more of it, not less.
Thank you.
Speaker Change: That's great. I appreciate that. I appreciate that color. Maybe just to follow up then, you know, in the context of your opportunity set, you know, in the Middle East, you know, as it relates to not only your existing contracts that you have and then in the case of Billy Peck.
Speaker Change: I guess my question is along these lines, right? So you got a bit of a makeshift taking place in Saudi and they've kind of...
Speaker Change: Shifted their spend a little bit off of the oil front and and on to the, you know, unconventional natural gas front Which have a place to your spec rates but do you ultimately see that there is the prospect for absolute displacement of unconventional rigs in in Saudi going forward
Thank you.
I think
when you think about
Speaker Change: I think it's early times, of course, on the unconventional side in Saudi. And I'm not an expert on the types of rigs that are drilling in the unconventional place.
But
Speaker Change: My sense is that there's rigs that are doing both conventional and unconventional work that are of the same rig category.
Speaker Change: if that makes sense, and the flex rig is going into Saudi to do nothing but unconventional drilling.
Speaker Change: which is what we're doing in Argentina, which is what we're doing in Australia.
Speaker Change: I think we even have, I think we may be doing some unconventional work in another country too, probably hesitate to mention it at this stage. But in general, we think that there are opportunities to do that.
Speaker Change: And I think, you know, just logically, the conventional rig fleet will continue to drill conventional oil and conventional gas. I don't know if that answers your question or not.
Speaker Change: Yeah, generally, I think, you know, I'm just looking back at what's transpired here in the U.S., right, and we've gone from, you know, mechanical to A.C. rigs, and maybe in some ways we've gone from conventional well drilling to unconventional, right, so...
Speaker Change: I was just curious if there's a similar trend we should be looking at, you know, starting to evolve, you know, in the Middle East. So, yeah, it's all incremental.
Speaker Change: Yeah, I think there's a dramatic difference in the types of wells, conventional wells, that we drill, or that are being drilled in the Middle East.
Speaker Change: compared to the conventional work that oil wells that are drilled in the U.S. You know, there's just a night-and-day difference in the types of wells and the complexity with those conventional...
wells, the depth, the casing size.
Speaker Change: the pressure, you know, 10,000, 15K pressure rating. So there's a lot to be said. It's an entirely different market, at least the way I look at it, in the Middle East than what we have in the U.S. or than we've ever had in the U.S., quite frankly.
Speaker Change: That's exactly what I was looking for. Thank you, really appreciate it.
Speaker Change: Thank you. Our last question will come from Thomas Curran with Seaport Research Partners. Please go ahead.
Good morning, guys.
Speaker Change: John, I wanted to shift gears to technology and return specifically to the data point you shared in your opening remarks about having reduced GHG emissions by 10 percent.
Speaker Change: Could you expound upon what contributed to that, what the main drivers were, and then update us on your strategy for powering the fleet, sort of.
Speaker Change: over the long term, what kind of fuel mix would you like to move towards?
for the U.S. Land and Building Rights League.
Speaker Change: Part of that is just the efficiency of our fleet getting better, drilling more feet per day in less time. Another part of that is having more rigs on the highline power.
Speaker Change: You know and really it's a collaborative, you know effort with the customer So going forward we want to be able to provide the power solutions that they want and they need and so that's really Kind of working hand-in-hand with our customers and providing that
Speaker Change: that whatever technology they choose, whether that's all-diesel, high-line, natural gas, or a combination of that, or using battery, we've explored all kinds and we're willing to work with customers on whatever makes sense for them.
Speaker Change: The other thing I would add is that we do have automation associated with our on-off powering of our engines.
Speaker Change: And so, you know, the beauty there is that the engine load is going to be adjusted based upon the amount of load that we're actually undergoing, depending on whether you're drilling ahead or whether you're running casing, as an example.
Speaker Change: And so, with a higher load, you're going to have three or four engines running. With a lesser load, you're going to have one or two engines running. The beauty is, is you don't have to send a person down to turn off or turn on an engine. It does it autonomously. It does it automatically.
Speaker Change: So that's one of the advantages. I think what Dave said, at the end of the day, we're not paying for the energy on the location. So whether it's diesel or whether it's high-line power, natural gas,
Speaker Change: We're going to do and support what our customer wants to do. But we're definitely trending in the right direction and continuing to lower our emissions.
You know as we move forward
Speaker Change: Got it. Could you give us an idea of how many rigs within the current active fleet are on high line power or being fueled by natural gas?
Speaker Change: I think the High Line Power number last time I saw was between 15 and 15 and 20 rigs.
Thank you. Thank you. Thank you.
Speaker Change: Natural gas, I don't remember what our count is, but for us it's a relatively small number of natural gas engines.
Speaker Change: Again, it's just shifting from a diesel power to a natural gas is quite expensive, but there are some fuel mix, there is some hybrid ways that we're going to be looking at that. We'll be talking more about that next year.
Speaker Change: Got it. We'll stay tuned for that. Last one for me, you know, as you guys have shifted...
Speaker Change: The focus of your strategy, you know, solving for your international growth goals
via the pending acquisition of ACAD.
Speaker Change: Are you seeing any of your peers who own the remainder of the EIDL SuperSpec inventory in the U.S. maybe step it up and either
Speaker Change: start to market some of their available inventory into foreign markets, you know, start to bid on tenders, or if they're already doing that, become more aggressive because they think of, you know,
Speaker Change: the big dog with the lion's share of that inventory who had been taking that approach is now pivoting and therefore creating a bit of an opportunity. I'm just wondering if you're seeing any of your competitors change their behavior when it comes to
Speaker Change: exploring and pursuing international opportunities for their idle super spec rigs.
There have been a few examples where
Speaker Change: Some of our peers in the U.S. were moving some of their assets. I think some assets that were idle, some assets that over time had been active.
Speaker Change: They weren't as successful in a particular basin and decided to send them to international markets.
I do think that that is possible.
Speaker Change: With our larger footprint with KCA DOITAG, we definitely feel like we've got
Speaker Change: exposure to countries that we didn't have exposure to before with the FlexRig fleet, so our ability, like we did in
Speaker Change: in Saudi, the ability to mobilize additional flex rigs out of the U.S. to international markets I think present a great opportunity and so I'm sure others are looking at that as well.
and John Lindsay.
Speaker Change: makes sense. Thanks for squeezing me in and taking all my questions. It was very helpful.
Thank you.
Speaker Change: Thank you. At this time, I'd like to turn the call back over to John for any additional or closing remarks.
All right, thank you Todd
John Lindsay: In closing today, the company is going to continue to strive
to execute with a customer-centric approach and a safety focus.
That's really ingrained in our company culture.
John Lindsay: We, as we've said, we look forward to closing the acquisition with KCA DOITAG and taking advantage of the additional opportunities that that acquisition will provide us.
John Lindsay: and the opportunities that will come up in the coming quarters.
John Lindsay: I really appreciate our people's efforts on the integration front. We have a lot going on at the same time we've got pre-closed integration ongoing.
John Lindsay: continuing to focus on delivering value for our customers and doing it the H&P way and as always keeping safety at the forefront of everything we do. So thank you again for joining us and we'll talk to you later. Thank you.
Speaker Change: This concludes the Helmerkin-Payne fiscal fourth quarter earnings call. Thank you for your participation. You may disconnect at any time.
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